The Difference Between Debt Consolidation Loans And Debt Reduction Programs
Posted on October 9th, 2010 in Debt Assistance | No Comments »
photo credit: SqueakyMarmot
When you’re struggling with debt and are looking for a way out of spending so much of your monthly income on debt repayments it’s quite likely that your mind will turn to the various professional debt assistance services available these days including debt consolidation loans and debt reduction programs.
At first glance these may seem like very similar services and indeed many debt elimination companies offer both services at the same time – indeed sometimes more than just these two – and so telling them apart and deciding which is the best option for your situation can be something of a challenge.
Debt consolidation loans essentially allow you to take out an additional loan which you can then use to repay your existing debts. This leaves you with just one single debt repayment to make each month rather than a host of old debts to keep under control.
Opinion is divided on debt consolidation loans. One the one hand this can be a very useful tool for gaining control of your financial future and keeping up to date with your debt repayments whilst reducing your monthly outgoings.
On the other hand the additional interest charged by debt consolidation companies will often mean that by the time you have finished paying off the loan you will have paid back considerably more than if you had just paid your original debts.
Of course for many people this is less important than gaining control of your finances so you can start to live a normal life again rather than worrying all the time about meeting your financial obligations.
Debt reduction schemes are rather different in that you authorize another company on your behalf to negotiate with your creditors for you. This means you no longer have to deal with any nasty letters of phone calls about overdue debts and have a professional on your side. These debt reduction experts negotiate to reduce the overall debt you have and create an affordable agreement with each of your creditors.
The upside of debt reduction services is that your debt should actually go down rather than up when using these services though you also need to be aware that these services have the potential to significantly affect your credit rating while a debt consolidation loan is far less likely to have this overall effect.
So now you understand the differences between these two forms of debt assistance it’s just a matter of working out which solution is likely to work best for you.
